Globalization and Catching-up in Emerging Markets

To believe is the privilege of politicians. Economists should know. The economic policy makers – who are typically economists put in charge of politics – usurp the prerogatives of both groups and mistake belief for knowledge. What they believe is that, the way the world is made, the poor should be able to catch up with the rich and reduce the enormous differences in the level of economic development. Yet, these differences somehow grow year by year. Today nearly half of the world’s inhabitants live on less than two dollars a day, and a billion people – a sixth of mankind – subsist on less than a dollar. Faith, of course, can help, but what is of decisive importance is knowledge. What then do we know about the capacity of the emerging, relatively backward market economies to catch up with the highly developed countries? What are the systemic arrangements and development strategies that might lead to this objective? What historic lessons are there to be learned concerning the management of economic growth in the future? How to distinguish the inevitable legacy of the past, which can only evolve as time goes by, from the economic policy options left open? These are the questions we should constantly ask, all the more so since the old answers become outdated as the development factors change. A third of a century ago, in 1969, the United Nations set up an expert group, known as the Pearson Panel, to suggest measures facilitating growth in less developed countries and to level out the differences in living standards. The Panel proposed development strategies which supposedly promised the backward countries (many of which were then in the process of gaining independence after centuries of colonialism) to attain a 6-percent growth over the coming decades. Countries that managed thus to accelerate their economic growth were expected to become – mainly through the expansion of exports – self-reliant partners in the world economy by the year 2000. The year 2000 has passed and the course of development outlined by the Pearson Panel turns out to be a rare exception rather than a rule. The United Nations established, therefore, a new expert group, this time headed by the former President Ernesto Zedillo of Mexico, whose task is to advise on policies aiming to foster economic catching-up and, in particular, to implement the ambitious UN Millennium Summit goals – one of which was to reduce the number of people living in extreme poverty by at least half a billion until 2015. The Zedillo Panel believes that this could be achieved through rapid economic development, if only the rich countries would increase their annual assistance for poor countries to 0.44 percent of their GDP. The trouble is, as we all know, that they would not (although they should) and so development aid lags at a paltry 0.22 percent. Consequently, the numbers of the poor do not shrink, disparities in development level increase, and distances to catch up grow. The year 2015 will soon have passed, too, conceivably without bringing any noticeable improvement. There will be few winners, many more losers, and all the remaining actors are also likely to be dissatisfied with the workings of the globalized economy and the living standards achieved. Can we do better than that? This chapter deals with the fundamental theoretical aspects of and practical prerequisites to the catching-up process in the emerging market economies. Following this introduction, Part 2 presents the hitherto efforts in this area and the actual socio-economic processes going on over the last decades. Part 3 describes the current phase of globalization and analyzes its influence on the trends in output change and its pace. Part 4 contains a characterization of the young, institutionally immature market economies which seek to boost their growth rate through integration with the global system. The disparities in development